Sunday, October 4, 2015

How the Superwealthy Plan to Make Sure Their Kids Stay Superwealthy

The first clue that this is no ordinary crowd of sulky teenagers comes when the instructor asks those who’ve invested in the market to raise their hands. Most hands go up. As a financial planner explains the benefits of investing, one boy interrupts. “What do you suggest investing in right now?” asks Liam Whitfield, 18, a senior at a private Seattle high school, with swooping bangs and a shaggy sweater. The speaker, from a local investment firm, suggests a standard mix of 60 percent stocks and 40 percent bonds. Whitfield looks disappointed. He already owns shares of Apple, Facebook, and Starbucks. “I was kind of looking for an actual stock tip,” he says.

It’s a Saturday morning in March, and Whitfield is sitting with two dozen teens in an antiseptic meeting room for a lesson on money management arranged by their well-to-do parents. The lecturers have broken the ice with a Saturday Night Live ad for a book of financial advice called Don’t Buy Stuff You Cannot Afford. (It’s one page long.) They show photos of cars that go from humble to glamorous and ask the kids to pick one—but only after calculating how long it would take to afford by saving $2,000 a year. An instructor praises a girl who chooses a Volkswagen Jetta over a $90,000 Range Rover. “You followed all the rules—it’s exciting, guys, right?” says John Gage, a 6-foot-9-inch recent Stanford graduate who roams the front of the room. Gage works for Cornerstone Advisors, a wealth management firm in Bellevue, Wash., that’s hosting the class for children of clients and prospects. During an exercise in monthly budgeting drawn from real-life salaries, someone notes how difficult it can be. “Especially if you’re a teacher,” one kid cracks.

This is the most gilded age since the Gilded Age, with 5 percent of American households controlling 63 percent of the country’s wealth. Decades of stagnant income growth for the middle class contrasts with family dynasties such as the Waltons of Wal-Mart, wealthier than the poorest 40 percent of households combined. Some $59 trillion—the largest intergenerational transfer of wealth in U.S. history—will flow down from estates through 2061, according to Boston College’s Center on Wealth and Philanthropy.

None of that’s made the rich any less anxious, at least when it comes to keeping their money. The number of family offices for the ultrawealthy has doubled since 1998, branching into areas far beyond portfolio and tax planning. The advisory firms reach deep into their clients’ family lives, aiming to prevent squabbles among heirs and head off early signs of wastrelism. Some teach classes like this one near Seattle or organize family retreats. Others use board games and flashcards to drill sound money concepts into children as young as 5. One firm, Ascent Private Capital Management, employs an historian and two psychologists to help clients put their fortunes and family dynamics into perspective. “We didn’t just want to help clients manage wealth, we wanted to help clients manage the impact of wealth,” says Michael Cole, the firm’s president.

Like others in the business, he brings up an adage—shirtsleeves to shirtsleeves in three generations—and says, “It’s real.” Thought to be a variation on a saying from Lancashire, England, about families going from clogs to clogs, the idea resonates in many cultures. Japan’s version is rice bowl to rice bowl. In Italy, from stars to stall. Or, as the striving executive Jack Donaghy put it on 30 Rock: “The first generation works their fingers to the bone making things; the next generation goes to college and innovates new ideas; the third generation snowboards and takes improv classes.”

Adviser Roy Williams says he was recently approached by a representative for wealthy Asian families in the Pacific Northwest, each with more than $200 million. “They said, ‘The kids are consuming our wealth, buying Lamborghinis and Bentleys, and we don’t know how to change the pattern,’ ” he recalls.

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